Life has two certainties, death and taxes. Claims against estates are an inevitable consequence of the former, and that inevitability has lead over the years to a number of statutes that have clarified the rights to claim.
In our latest post to the Law Library by Ross Dillon explores the some of the issues that revolve around deceased estates and estate disputes. Ross has been a partner and litigator in a leading mid-sized Auckland firm for almost a quarter century.
He has specialized in dispute resolution and has a reputation for forging successful resolutions in even the most bitter estate disputes. To read more about Ross click here. To download the full article as a PDF click here.
There are three main heads of claim: first, the rights of a spouse to claim under a will, or under the Property (Relationships) Act. Secondly, the right of a family member (spouse, child or grandchild) to claim further maintenance from an estate. Thirdly, the right of any party who has been promised something by the deceased, to claim for it.
One of the ways used to limit such claims has been the use of Trusts. By setting up a trust, the settlor (the person or people funding the trust) removes that property from their own estate(s). Obviously, if they do not own it, no claim to it can be made once they die. Problem (apparently) solved.
However, the law of trusts itself is complex, and a new statute is being considered to clarify what the rights and obligations surrounding a trust are (see Law Commission, Review of the Law of Trusts, R 130). The recommendations for change include the following:
- Codifying the essential duties for trustees
- Providing for rules regarding the provision of information to beneficiaries
- Prohibiting some limits on the liabilities of trustees
- Providing some rules around the removal of trustees and any changes to their powers
- Providing the Family Court with power to order payment by a Trust to a spouse in Relationship Property and related cases.
If adopted, this last recommendation would allow a spouse to make a claim against the deceased estate, with the potential to completely restructure any trust settlements made during the marriage.
Currently, when a spouse dies, the surviving spouse has a period within which to elect to take under any will, or file a claim against the estate under the Property (Relationships) Act.
If the will has not recognised a fair distribution to the surviving spouse, a claim is likely.
But if this new power is given to the Family Court, it is likely to encourage more such claims. This is because a will can only deal with the estate of the deceased – not any Trust set up prior to death. So the estate could be very modest.
But a claim under the proposed amendment would allow trust assets to be taken into account, and thus potentially hugely increase the assets available for the surviving spouse to claim against.
To mitigate that risk, it is wise to have a Relationship Property Agreement, as well as a Will, especially if setting up a Trust in the course of a relationship. This process will draw all those threads together. If the survivor elects to make a claim for Relationship Property, that claim will be governed by the terms of the Relationship Property Agreement (in most cases). If that agreement has been drawn up with the terms of the Will and the Trust already in mind and properly accounted for, the result should be the same whether a claim is made for Relationship Property, or merely accepting the terms of the Will.
This should leave an estate facing only the two other potential claims – by children and grandchildren, or by someone claiming a testamentary promise. Which are discreet issues best left for another time.
Anyone facing such issues, or considering what their options might be, should give us a call for friendly and informed advice. To contact us click here.